PVR LTD: CASHING ON DIWALI RELEASES !!!

Scrip Code: 532689/ PVR

CMP:  Rs. 495.15; Accumulate between 475 - 495 levels.

Medium to Long term Target – Rs. 522.50 - 544.50; STOP LOSS – Rs. 437.00; Market Cap: Rs. 1,961.63 Cr; 52 Week High/Low: Rs. 565.85 / Rs. 202.55

Total Shares: 3,96,16,995 shares; Promoters : 1,22,95,970 shares –31.04 %; Total Public holding : 2,73,21,025 shares – 68.96 %; Book Value: Rs. 157.20; Face Value: Rs. 10.00; EPS: Rs. 15.39; Dividend: 10.00% ; P/E: 32.17 times; Ind P/E: 33.37; EV/EBITDA: 20.36.

Total Debt: 601.44 Cr; Enterprise Value: Rs. 2,277.14 Cr.

PVR: PVR Limited was incorporated in 1995 and is based in Gurgaon, India. PVR LTD was incorporated in April 1995 pursuant to a joint venture agreement between Priya Exhibitors Private Limited and Village Roadshow Limited, one of the largest exhibition companies in the world. PVR Limited is an India-based company that operates movie houses in India. PVR Ltd came with an IPO on 8th December 2005 with an issue price of Rs. 225/share and raised about Rs. 173.25 Cr with an objective to utilize the proceeds to finance the then new cinema projects in various cities across the country, to expand the film distribution business, technological up gradation and renovation of cinemas. The Company also generates revenue from in-cinema advertisements/product displays and in-cinema sale of food and beverages. It also produces and co-produces movies; and distributes movies, as well as operates 24 lane bowling centers. The company operates 213 screens in 46 cinemas in 27 cities. Company’s subsidiaries include CR Retail Malls (India) Limited (CRR), PVR Pictures Limited (PVR Pictures) and PVR bluO Entertainment Limited (PVR bluO). The Company has diverse cinema circuit in India consisting of 35 Cinemas with 154 screens spread over 20 different cities: Delhi, Faridabad, Gurgaon, Ludhiana, Ghaziabad, Mumbai, Bangalore, Hyderabad, Chennai, Lucknow, Indore, Aurangabad, Baroda, Allahabad, Ahmedabad, Udaipur, Chandigarh, Surat, Latur and Raipur. PVR Ltd announced the opening of a multiplex on August 15, 2012, at Empress Mall, in Nagpur in the state of Maharashtra. The multiplex consists of five screens. On January 8, 2013, PVR through its wholly owned subsidiary Cine Hospitality Private Ltd purchased a controlling stake of over 69 % followed by the open offer for another 26% in the Cinemax India Limited for Rs. 395 Cr or Rs. 203.65 per share from the Rashesh Kanakia and family. PVR Ltd is locally compared with Prime Focus ltd, Reliance Broadcast Network Ltd, Balaji Telefilms ltd, Media Matrix Worldwide Ltd, Shree Ashtavinayak Cine Vision Ltd, Tips Industries Ltd, Fame India Limited, Cinemax Properties Ltd, Era E Zone (India) Ltd, Pyramid Saimira Theatre Limited and Inox Leisure Ltd and globally compared with Walt Disney Co of US California, Time Warner Inc of USA, IG Port Incorporated of Japan, Twenty First Century Fox, Inc of New York, Lions Gate Entertainment Corp of California,  UTV Media PLC of UK, Dreamworks Animation Skg Inc of California, Orange Sky Golden Har. Ente. Holdings Ltd of Hong Kong, Kinepolis Group NV of Belgium, Cinemax X AG of Germany, Digital Cinema Destination Corp of United States and Reading International Inc of United states.

Investment Rationale:

Priya Village Roadshow (PVR) Cinemas is a leading cinema chains in India. The company began as a joint venture agreement between Priya Exhibitors Private Limited and Village Roadshow limited in 1995 with 60:40 ratios. PVR is on a spree of opening new multiplexes it opened cinema halls in Ambience mall, Gurgaon in 2007 named “PVR Ambinece Premier” as first 2K Dolby Digital multiplex with five Premier class auditoria and two Glod Class auditoria. Currently PVR controls 398 including 135 Screens with Cinemax India Ltd at 92 locations across 37 cities in 13 States and 1 Union Territory. It also plans to open another 500 screens by 2015. PVR commands a significant presence in New Delhi and NCR with 55 screens in 16 multiplexes. PVR also has its strong presence in Chandigarh, Bhopal, Ludhiana, Nagpur, Chennai, Lucknow, Indore, Hyderabad, Bangaluru, Mumbai, Nanded, Ahmedabad, Kochi, Udaipur, Vijayawada and Visakhapatnam. PVR recently launched its premium brand, PVR Premiere, targeting urban consumers in metros. The company operates three other brands, PVR Talkies, the no-frills cinemas for consumers in tier II cities, the original PVR Cinemas targeted at the urban & semi-urban consumers and PVR Director's Cut for ultra luxury watching. Recently PVR opened a Multiplex at Diamond Plaza Mall, Jassore Road, Kolkata in the State of West Bengal, this is of Five Screens Multiplex and is fitted with latest Sound and Projection System. PVR opened another Multiplex at Koregaon Plaza Mall, Pune, Maharashtra; this is a Seven Screens Multiplex with 1519 Seats operational from 8 September 2013 fitted with latest Sound and Projection System. PVR has witnessed a very good increase in Footfalls and Average Ticket Price. The footfalls in Q1FY14 were higher on account of the good box office performance by movies like Yeh Jawani Hai Deewani, Raanjhnaa and Aashiqui 2. Footfalls increased from 1.15 Cr in Q4FY13 to 1.51 Cr in the current quarter. The addition of 23 new screens in the PVR portfolio helped to the increase the footfalls numbers. The company has also been able to report an impressive hike in ATP, which increased from Rs. 172 and Rs. 153 in Q4FY13 to Rs. 174 and Rs. 160 for PVR and Cinemax properties, respectively. The management indicated the ATPs of screens with similar stature of PVR and Cinemax would converge subsequently as the company would hike Cinemax’s ATP as and where suitable. PVR reported its Q1FY14 numbers, with a top line of Rs. 335.2 crore on the back of higher-than-expected footfalls, which increased to 1.51 Cr. The company reported a consolidated EBITDA margin of 17.7 % while the EBITDA for the quarter stood at Rs. 59.4 crore, growing 76 % YoY. However, exceptional item on account of write-off of CWIP towards discontinued projects and provisions for items under litigation marred PAT, which came in at Rs. 13.6 crore. The property expansion in this quarter has been impressive along with remarkable increase in ATP. It is expected that PVR could launch 48 more screens in this fiscal.

Outlook and Valuation:

PVR DIRECTORS CUT VASANT KUNJ

The recent KPMG report anticipates the market size of Indian Music & Entertainment sector to touch Rs 1,45,700 Cr (US$ 25.51 billion) by 2016. There is increased penetration in Indian markets, which is expected to even intensify further, owing to a revolution brought in by digital technology. Wireless broadband, growing internet usage, cable digitisation and higher DTH adoption would further drive Indian M&E industry. The report also noted that smart phones, tablets, gaming devices have laid the foundation of a new wave in the industry. There are 10 number of screens per 10 lakh people in India as against 120 screens per 10 lakh people in USA. A stream of several successful Hindi and English film releases drove PVR’s strong results. Every ticket of Rs. 100 sold is divided as Rs. 20 as entertainment tax, Rs. 36 to distributors and then Rs. 44 for the multiplexs. Multiplexes enjoys margin of around 30 % on Exhibition, margin of around 65 % on food & berverages and margin of around 80 % on advertisement - translating into revenue of around Rs. 68 for exhibition, Rs. 25 for food & berverages and Rs. 7 for advertisment. On a comparable basis, combined revenues and EBITDA for PVR and Cinemax were up respectively 23 % and 9 %. Revenues and EBITDA for 1QFY14 came 6 % ahead of our estimates, following stronger-than-expected footfalls and average ticket prices (ATP). ATP for Cinemax now stands at Rs. 160, versus Rs. 174 for PVR. Lack of operating leverage suggests a likely increase in repairs, maintenance and general upkeep expenses to improve the quality of service / experience offered to visitors. It is believed that buoyancy in the film industry continues to drive the results, the Film exhibition revenue has registered a 17 % CAGR over CY10-12. In CY13 so far, net box-office collections from Hindi and Hollywood films climbed 27 % yoy. During 1QFY14, collections were up 39%. In the past six months the company’s valuations have surged owing to its strong business and earnings growth in FY13, and the Cinemax acquisition (which marks major industry consolidation). The stock trades at 18x oneyear forward-PE, broadly similar to the average of the last six months. It is expected that this valuations to be sustained by growth in the industry and for the company. A 50-bp drop in the average occupancy ratio erodes could effect the price of the stock by 5 %. At the current market price of Rs. 495.15, the stock P/E ratio is at 22.92 x FY14E and 18.33 x FY15E respectively. Earning per share (EPS) of the company for the earnings for FY14E and FY15E is seen at Rs. 21.60 and Rs. 27.00 respectively. The content pipeline of the company is exciting, with big releases this diwali like Hrithik Roshan starrer Krish-3, Ranveer and Deepika starrer RAMLEELA, Imran and Karina Starrer Gori Tere Pyaar Mein and Sunny deol's action movie Singh Sahab The Great, will be an great oppurtunity for PVR and would be benefited as a major market share holder. It is expected that the company’s surplus scenario is likely to continue for the next three years keeping its growth story in the coming quarters also. Eros is trading at a significant discount to other media businesses. Factoring in revenue and PAT CAGR of 17.4% and 14.3%, respectively, in FY13-15, PVR Cinemas could be a good ‘BUY’ with a target price range of Rs. 522.50 - 544.50 for Medium to Long term investment

KEY FINANCIALS	FY12	FY13E	FY14E	FY15E
SALES (₹ Crs)	513.10	809.70	1,410.50	1,595.40
NET PROFIT (₹ Cr)	25.40	44.50	85.70	107.10
EPS (₹)	9.80	11.20	21.60	27.00
PE (x)	35.70	31.20	16.20	13.00
P/BV (x)	3.30	2.20	1.90	1.70
EV/EBITDA (x)	19.40	15.80	7.40	6.10
ROE (%)	9.10	6.90	11.80	12.90
ROCE (%)	9.00	6.00	11.30	11.90

I would buy PVR LTD for Medium to Long term for target of Rs. 522.5 - 544.50. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or ₹ 437.00 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

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